As demand for VoIP products continues to grow, so will the market for the integrated circuits that make the Internet-enabled voice communication possible.

Research firm In-Stat is forecasting a five-fold increase in VoIP ICs, as VoIP functionality is increasingly integrated into customer premise equipment including modems, routers and residential gateways.

In-Stat pegged the VoIP market for 2004 at $208.7 million, a figure the high tech research firm projects will burst to $1.3 billion in 2009. VoIP ICs will also benefit from growth in wireless handsets.

"By the end of the forecast period, VoIP functionality will be integrated into a high percentage of new wireless handsets," said Norm Bogen, In-Stat analyst. "From a revenue perspective, the IP Phone sub-segment (wireless and wireline combined) represents the smallest revenue market today, but will be the largest one by 2009. This reversal will occur due to high growth in business-oriented IP PBX/hosted PBX phones and dual-mode wireless handsets."

Among several trends detailed in In-Stat's just-released report, "VoIP ICs: Building a Foundation for the Future":

VoIP IC revenue on the infrastructure side is growing more slowly than other segments. One reason is the extreme price pressure that begins at the service provider level and filters down through VoIP equipment providers to their silicon providers.

Texas Instruments' initial dominance of the VoIP IC market is declining even as TI shipments continue to grow. As the market expands, new fabless players are gaining a stronger foothold.

One potential thorn in the side of VoIP's burgeoning growth is security concerns. Earlier this month, security experts warned that Internet phone software that makes VoIP possible could pose a threat to corporate networks.

Ross Armstrong, senior research analyst at Info-Tech in London, Ontario, Canada, urged businesses to ban the use of free Voice over IP software provider Skype in the workplace -- especially if they already have similar policies regarding the use of peer-to-peer technologies.

Skype usage in the enterprise, he said, is in many ways similar to the steady growth of public instant messaging services the past couple years. The real danger, he said, is if Skype is downloaded and used in an enterprise as an unsanctioned software application.

Skype was acquired by eBay in September for $2.6 billion and counts some 54 million members in 225 countries and territories using its free software.

VoIP security is a big issue, though I don't see it slowing growth," said In-Stat's Bogen. "I see the threat as an opportunity for the IC providers to enable security in their chips. Technology should overcome the problem, but today it's a legitimate concern."